Energy watchdog reveals penalties for environmental violations, but goal is 'not to punish'

Jason Fekete, Postmedia News07.16.2012

Workers remove crude oil after a major spill near the northern Alberta community of Little Buffalo in 2011. The National Energy Board has released outlines of new penalties of up to $100,000 for energy companies that breach their regulatory requirements, with the goal to encourage "voluntary" compliance, and not to punish.

OTTAWA — The National Energy Board has released broad outlines of new financial penalties of up to $100,000 for companies that breach their regulatory requirements, with the goal being voluntary compliance and "not to punish or to seek retribution for wrongful activity."

Along with the new financial penalties system — created by the federal budget implementation bill that just passed through Parliament — the country's energy regulator has also announced time limits for a handful of applications it's reviewing, including Enbridge's proposed multibillion-dollar Line 9 pipeline reversal project in central Canada.

Most major energy regulators in North America, including in Alberta, B.C., Ontario and the U.S. federal government, are able to impose what are called administrative monetary penalties (AMP) for regulatory violations on safety and environmental protection.

The NEB, however, has not had such a program to date. The federal budget bill authorized the energy regulator to create a system of financial penalties of up to $100,000 for each violation for corporations and $25,000 for individuals. Each day a violation continues is considered a separate incident and subject to additional penalty.

Yet the NEB says, in a new discussion paper outlining the broad strokes of the program, that its goal is to encourage voluntary compliance, not to punish with financial penalties. In fact, companies or individuals could have fines for regulatory breaches either reduced or eliminated if they fix the problem.

"The goal of an AMP system is to encourage compliance with a set of regulatory requirements, not to punish or to seek retribution for wrongful activity," says the NEB document.

"The board expects the majority of its work to continue to be focused on facilitating compliance through voluntary measures."

Possible penalties would relate to the design, construction, operation, maintenance and abandonment of pipelines and power lines regulated by the board.

The specific activities considered violations will be written into new regulations, following consultation with industry and other stakeholders. The new regulations are expected to be in place by July 2013.

The NEB is proposing penalties be calculated in two parts: a baseline penalty for a violation and an adjustment based on aggravating or mitigating factors.

Under this approach, regulatory violations would be classified as either serious or very serious, with a baseline penalty set for each category as well as for individuals and corporations.

The baseline penalty could then be adjusted — up or down — based on a number of factors, including history of violations, competitive or economic benefits gained, efforts to mitigate or reverse the effects, steps taken to prevent reoccurrences, and other criteria.

"There are no circumstances under which a baseline penalty could be adjusted upwards beyond the maximum penalties set out in the Act," the report says.

However, because the program's objective "is to encourage compliance rather than to punish," the NEB proposes compliance agreements that would allow a penalty to be reduced or eliminated if the individual or company came into compliance within a set time.

"Having financial penalties is an important tool for the NEB, but let's be clear, the fines need to be sufficiently high to deter illegal behaviour," said Nathan Lemphers, senior policy analyst at the Alberta-based Pembina Institute, an environmental think-tank.

"For the highly profitable companies, having low fines is actually a perverse incentive for continued non-compliance."

Lemphers said having such "abysmally low" fines is not adequate incentive for companies to comply with their regulatory responsibilities.

Rather, it's often financially advantageous for companies, especially multibillion-dollar corporations, to continue polluting and pay the fine than to fix the problem, he argued.

The federal government announced in the March budget the NEB will receive $13.5 million over two years (with the cash to be cost-recovered from industry) to increase the number of oil and gas pipeline inspections to 150 per year from 100 and double from three to six the number of major annual audits to flag issues before incidents occur.

The budget also established separate penalties, under the Canadian Environmental Assessment Act, of up to $400,000 for any company that doesn't respect conditions established by regulators following an environmental assessment of a new project.

Changes in the budget bill also imposed fixed beginning-to-end timelines of 18 months for most NEB applications.

The NEB, as required by the budget legislation, has just announced time limits on some of the applications it's reviewing, including an Oct. 4, 2012, deadline for the controversial Enbridge Line 9 reversal, which would allow Alberta oilsands and other crude to flow east into central Canada.

"The NEB will continue to conduct its proceedings in an open, fair and impartial manner. The NEB has always strived for efficiency in our hearing processes and these new timelines will not impact our ability to complete the process to the high standards we've always maintained," NEB spokeswoman Rebecca Taylor said in an email.

Enbridge's multibillion-dollar plan proposes to fully reverse the company's 240,000-barrels-per-day Line 9 pipeline so it flows from Sarnia, Ont., to Montreal.

But the move is facing mounting backlash from environmental groups and some landowners worried about possible pipeline ruptures that could contaminate ecosystems, farmland and watersheds draining into the Great Lakes. They're also concerned the NEB is ramming through a decision without sufficient time for review.

"It's critical that a public review process have sufficient time and resources to understand public opinion," Lemphers said. "Rushing it through undermines the credibility of the regulatory review process."

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Energy watchdog reveals penalties for environmental violations, but goal is 'not to punish'

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